Business Segments

We have five distinct business segments that we utilize for management reporting and analysis purposes, which are aligned with HSBC's global business strategy: Retail Banking and Wealth Management ("RBWM"), Commercial Banking ("CMB"), Global Banking and Markets ("GB&M"), Private Banking ("PB") and a Corporate Center ("CC"). There have been no changes in the basis of our segmentation as compared with the presentation in our 2018 Form 10-K.

Net interest income of each segment represents the difference between actual interest earned on assets and interest incurred on liabilities of the segment, adjusted for a funding charge or credit that includes both interest rate and liquidity components. Segments are charged a cost to fund assets (e.g. customer loans) and receive a funding credit for funds provided (e.g. customer deposits) based on equivalent market rates that incorporate both repricing (interest rate risk) and tenor (liquidity) characteristics. The objective of these charges/credits is to transfer interest rate risk from the segments to one centralized unit in Balance Sheet Management, recognize term funding costs/benefits and more appropriately reflect the profitability of the segments.

Certain other revenue and operating expense amounts are also apportioned among the business segments based upon the benefits derived from this activity or the relationship of this activity to other segment activity. These inter-segment transactions have not been eliminated, and we generally account for them as if they were with third parties.

Our segment results are presented in accordance with HSBC Group accounting and reporting policies, which apply IFRSs as issued by the IASB and endorsed by the EU, and, as a result, our segment results are prepared and presented using financial information prepared on the Group Reporting Basis as operating results are monitored and reviewed, trends are evaluated and decisions about allocating resources, such as employees, are primarily made on this basis. We continue, however, to monitor capital adequacy and report to regulatory agencies on a U.S. GAAP basis.

There have been no changes in the measurement of segment profit as compared with the presentation in our 2018 Form 10-K.

A summary of significant differences between U.S. GAAP and the Group Reporting Basis as they impact our results are summarized in Note 23, "Business Segments," in our 2018 Form 10-K. Other than the changes discussed below, there have been no other significant changes since December 31, 2018 in the differences between U.S. GAAP and the Group Reporting Basis impacting our results.

Leases - In January 2019, new accounting guidance was adopted for leases under both U.S. GAAP and the Group Reporting Basis. Under U.S. GAAP, expense on operating leases is generally recognized on a straight-line basis. Under the Group Reporting Basis, all leases are recognized as financing arrangements with interest expense on the lease obligation and depreciation of the ROU asset recorded over the remaining life of the lease.

Property - The sale and leaseback of our 452 Fifth Avenue property, including the 1 W. 39th Street building, in 2010 resulted in the recognition of a gain under the Group Reporting Basis, while under U.S. GAAP, such gain was historically deferred and was being recognized over the lease term. As a result of adopting the new accounting guidance for leases under U.S. GAAP as discussed above, we recorded a cumulative effect adjustment to recognize the previously deferred gain in retained earnings as of January 1, 2019.

The following table summarizes the results for each segment on a Group Reporting Basis, as well as provides a reconciliation of total results under the Group Reporting Basis to U.S. GAAP consolidated totals:



	Group Reporting Basis Consolidated Amounts
	RBWM			CMB			GB&M			PB			CC		Total			Group Reporting Basis Adjustments⁽¹⁾			Group Reporting Basis Reclassi- fications⁽²⁾			U.S. GAAP Consolidated Totals
	(in millions)
Three Months Ended June 30, 2019
Net interest income	$	217		$	202		$	136		$	37		$	18	$	610		$	3		$	(73	)	$	540
Other operating income	74			55			170			17			49		365			(3		)	74			436
Total operating income	291			257			306			54			67		975			—			1			976
Expected credit losses / provision for credit losses	12			9			2			2			—		25			23			(2		)	46
	279			248			304			52			67		950			(23		)	3			930
Operating expenses	305			142			210			56			48		761			10			3			774
Profit (loss) before income tax expense	$	(26	)	$	106		$	94		$	(4	)	$	19	$	189		$	(33	)	$	—		$	156

Three Months Ended June 30, 2018
Net interest income	$	225		$	195		$	151		$	43		$	18	$	632		$	6		$	(83	)	$	555
Other operating income	71			58			252			16			72		469			(9		)	77			537
Total operating income	296			253			403			59			90		1,101			(3		)	(6		)	1,092
Expected credit losses / provision for credit losses	3			(36		)	(143		)	—			1		(175		)	118			12			(45		)
	293			289			546			59			89		1,276			(121		)	(18		)	1,137
Operating expenses	341			139			209			61			54		804			—			(18		)	786
Profit (loss) before income tax expense	$	(48	)	$	150		$	337		$	(2	)	$	35	$	472		$	(121	)	$	—		$	351

Six Months Ended June 30, 2019
Net interest income	$	438		$	403		$	287		$	74		$	32	$	1,234		$	9		$	(141	)	$	1,102
Other operating income	139			113			345			33			73		703			(20		)	143			826
Total operating income	577			516			632			107			105		1,937			(11		)	2			1,928
Expected credit losses / provision for credit losses	33			15			(15		)	1			1		35			64			5			104
	544			501			647			106			104		1,902			(75		)	(3		)	1,824
Operating expenses	616			280			416			109			88		1,509			18			(3		)	1,524
Profit (loss) before income tax expense	$	(72	)	$	221		$	231		$	(3	)	$	16	$	393		$	(93	)	$	—		$	300
Balances at end of period:
Total assets	$	18,907		$	26,735		$	87,114		$	6,952		$	76,055	$	215,763		$	(31,700	)	$	—		$	184,063
Total loans, net	17,031			25,513			19,599			5,863			2,322		70,328			(2,340		)	3,877			71,865
Goodwill	581			358			—			321			—		1,260			347			—			1,607
Total deposits	33,606			23,554			29,674			7,226			6,021		100,081			(3,434		)	20,314			116,961



	Group Reporting Basis Consolidated Amounts
	RBWM			CMB			GB&M			PB			CC			Total			Group Reporting Basis Adjustments⁽¹⁾			Group Reporting Basis Reclassi- fications⁽²⁾			U.S. GAAP Consolidated Totals
	(in millions)
Six Months Ended June 30, 2018
Net interest income	$	441		$	381		$	300		$	90		$	33		$	1,245		$	14		$	(152	)	$	1,107
Other operating income	164			113			449			36			155			917			(20		)	153			1,050
Total operating income	605			494			749			126			188			2,162			(6		)	1			2,157
Expected credit losses / provision for credit losses	6			(46		)	(157		)	(3		)	4			(196		)	67			13			(116		)
	599			540			906			129			184			2,358			(73		)	(12		)	2,273
Operating expenses	666			290			425			122			586			2,089			(9		)	(12		)	2,068
Profit (loss) before income tax expense	$	(67	)	$	250		$	481		$	7		$	(402	)	$	269		$	(64	)	$	—		$	205
Balances at end of period:
Total assets	$	18,691		$	23,851		$	79,535		$	7,075		$	85,703		$	214,855		$	(34,168	)	$	—		$	180,687
Total loans, net	16,695			22,879			17,786			6,036			1,865			65,261			(1,341		)	1,948			65,868
Goodwill	581			358			—			321			—			1,260			347			—			1,607
Total deposits	32,672			23,643			32,749			8,112			4,553			101,729			(3,168		)	15,794			114,355


⁽¹⁾	Represents adjustments associated with differences between U.S. GAAP and the Group Reporting Basis.


⁽²⁾	Represents differences in financial statement presentation between U.S. GAAP and the Group Reporting Basis.